Command Paper misses the point

The government’s Command Paper, Reforming our Railways: Putting the Customer First, which was finally published in early March, was expected to provide answers to a number of issues facing the rail industry. The lengthy delay to is publication only served to raise the level of anticipation further since the railways have been clouded in an aura of uncertainty since the process to examine the high cost of the industry was started by the Labour government three years ago.

It has been an odd process. The notion that our railways are more expensive than those abroad has become conventional wisdom, seemingly accepted by both politicians and railway managers, and yet it has become something of a circular argument. Indeed, it’s been rather like a chain letter passed on around the Department. First we had Labour ministers suggesting that the railways were too expensive, and so Sir Roy McNulty was appointed to look at why this might be the case. But rather than starting with an open mind, he seemed to have concluded right from the outset that the British railways were costing some 30 per cent more than equivalent systems in Europe. So, surprise, surprise, when he reported a year ago, he found that yes, indeed, that level of savings could be made.

However, the precise way these reductions in cost could be made was left to others. McNulty identified various vague ways of making savings, such as ‘aligning incentives’ and ‘better management’, but there was precious little detail of how savings could be achieved. Indeed, his key finding was that the railways were too fragmented, and yet his proposed solutions did nothing to address that fundamental problem.

The detailed measures required were, therefore, expected to be found in the Command Paper, the government’s response to McNulty. Thrown in to the mix, too, was franchise reform, widely trailed as requiring longer franchises with less interference from the Department in operations. Just to make things a bit more complicated, the Office of Rail Regulation, under a new leader who is far more dynamic than his predecessor, Richard Price, has been angling, with support from some ministerial sources,  to extend its regulatory role to the train operating companies, as well as Network Rail. The operators are adamantly opposed to this as they are wary of any closer scrutiny.  So the Command Paper was expected to provide answers to various issues which the rail industry needs to be able to improve its performance.

Yet, it does nothing of the sort. First, the idea of franchising reform was simply jettisoned. There will be no major review of the system, and instead we will get a ‘horses for courses’ arrangement Secondly, the decisions about regulation will be made in the future. As for costs, the paper merely reiterates the view that the railways are more expensive than elsewhere, but takes us no further down the path of explaining how this can be tackled and what changes are needed. The magic figure of 30 per cent – or some £3-3.5bn annually – is merely repeated, and the Paper says it is up to the Rail Delivery Group, a semi voluntary committee of senior rail managers across the industry, to work out how to make the savings.

The problem is the lack of any detail. Network Rail is already expected to make half of the total savings, leaving the rest to come from the operators and the rolling stock companies. But the government has virtually no control over these. The train operators will bid for the franchises on the basis of what they feel they can afford and still make a profit. Many of their costs are fixed and, moreover, the government wants them to spend more on investment.

As for the rolling stock companies, we have been here before. The Labour government launched a costly investigation into their practices and in essence they were given a clean sheet. The Competition Commission found that it was the system and the risks it imposed on them which result in higher charges, not rank profiteering.

Don’t get me wrong. I am convinced there is fantastic waste in the industry. There are all sorts of practices which are unnecessary, and an excessive focus on safety, often out of proportion to the risks, is often the root cause. Take, for example, the fact that many new carriages are taken to their destination by road because of the bureaucratic procedures required to create a train path, satisfy safety requirements and ensure the loading gauge is correct. Every time a carriage is transported in that way, it is a slap in the face for the railway.

There are many similar examples. The constant exhortations to ‘align incentives’ are just so much hot air. There was no more compelling recognition of the failure of the fragmented railway than one of the reasons given by Sea Containers for throwing in the towel on the East Coast franchise: Network Rail had been performing too well and therefore not enough money was paid to the operator in compensation payments. The McNulty report or the Command Paper addresses both fail to address such contradictions.

However, there is nothing to justify that figure of 30 per cent since the accounts of overseas railways are often produced on a very different basis. Moreover, there are all sorts of other factors, such as the fact we have a particularly intensively used railway and we tend to have more off-peak trains which provides a good, but more expensive, service.

All this leaves the railways in a bizarre, almost paradoxical, situation. On the one hand, they are enjoying more investment and support from the government than for more than a generation. Moreover, this is not only happening at a time of austerity, but also with cross-party support. Yet, overhanging this, there is the fear that the failure to understand the constraints under which the railways operate, many of which are caused by the problems of the crazy privatised structure that McNulty failed to address, will result in unsustainable cutbacks. The key decisions will come in July when the High Level Output Specification – the plans for railway investment for 2014-9 – and the SOFA – Statement of Funds Available – are published. Then we will know the real extent of the commitment of this government to the railways. The Command Paper has really just been yet another restatement of the bleedin’ obvious.

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